Open-source software is widely used both as indepentent applications and as components in non-open-source applications. Many independent software vendors (ISVs), value-added resellers (VARs), and hardware vendors (OEMs or ODMs) use open-source frameworks, modules, and libraries inside their proprietary, for-profit products and services.[1] From the customer's perspective, the ability to use open-source technology under standard commercial terms and support is valuable. Customers are willing to pay for the legal protection (e.g., indemnification from intellectual property infringement), "commercial-grade QA", and professional support/training/consulting that are typical of commercial software, while also receiving the benefits of fine-grained control and lack of lock-in that come with open source.

Unlike proprietary off-the-shelf software, which comes with restrictive copyright licenses, open source software can be given away for no charge. This means that its creators cannot require each user to pay a license fee to fund development. Instead, a number of alternative models for funding its development have emerged.

Software can be developed as a consulting project for one or more customers. The customers pay to direct the developers' efforts: to have bugs prioritized and fixed or features added. Companies or independent consultants can also charge for training, installation, technical support, or customization of the software.

Another approach to funding is to provide the software freely, but sell licenses to proprietary add-ons such as data libraries. For instance, an open-source CAD program may require parts libraries which are sold on a subscription or flat-fee basis. Open-source software can also promote the sale of specialized hardware that it interoperates with. Some example cases are the Asterisk telephony software developed by a manufacturer of PC telephony hardware Digium, or the Robot Operating System (ROS) robotics platform by Willow Garage and Stanford AI Labs.

Many open source software projects have begun as research projects within universities, as personal projects of students or professors, or as tools to aid scientific research. The influence of universities and research institutions on open source shows in the number of projects named after their host institutions, such as BSD Unix, CMU Common Lisp, or the NCSA HTTPd which evolved into Apache.

Companies may employ developers to work on open-source projects that are useful to the company's infrastructure: in this case, it is developed not as a product to be sold but as a sort of shared public utility. A local bug-fix or solution to a software problem, written by a developer either at a company's request or to make his/her own job easier, can be released as an open-source contribution without costing the company anything.[2] A larger project such as the Linux kernel may have contributors from dozens of companies which use and depend upon it, as well as hobbyist and research developers.

Open-source software can be sold and used in general commercially. Also, commercial open-source applications are a part of the software industry for some time.[1][5] Despite that, except for Red Hat and VA Software, no other pure open-source company has gone public on the major stock markets. While commercialization or funding of open-source software projects is possible, it is considered challenging.[6]

Since several open-source licenses stipulate that derived works must distribute their intellectual property under an open-source (copyleft) license, ISVs and VARs have to develop new legal and technical mechanisms to foster their commercial goals, as many traditional mechanisms are not directly applicable anymore.

Traditional business wisdom suggests that a company's methods, assets, and intellectual properties should remain concealed from market competitors as long as possible to maximize the profitable commercialization time of a new product.[according to whom?] Open-source software development minimizes the effectiveness of this tactic; development of the product is usually performed in view of the public, allowing competing projects or clones to incorporate new features or improvements as soon as the public code repository is updated, as permitted by most open-source licenses. Also in the computer hardware domain, a hardware producer who provides free and open software drivers reveals the knowledge about hardware implementation details to competitors, who might use this knowledge to catch up.

Therefore, there is considerable debate about whether vendors can make a sustainable business from an open-source strategy. In terms of a traditional software company, this is probably the wrong question to ask. Looking at the landscape of open source applications, many of the larger ones are sponsored (and largely written) by system companies such as IBM who may not have an objective of software license revenues. Other software companies, such as Oracle and Google, have sponsored or delivered significant open-source code bases. These firms' motivation tends to be more strategic, in the sense that they are trying to change the rules of a marketplace and reduce the influence of vendors such as Microsoft. Smaller vendors doing open-source work may be less concerned with immediate revenue growth than developing a large and loyal community, which may be the basis of a corporate valuation at merger time.

The underlying objective of these business models is to harness the size and international scope of the open-source community (typically more than an order of magnitude larger than what would be achieved with closed-source models) for a sustainable commercial venture.[citation needed] The vast majority of commercial open-source companies experience a conversion ratio (as measured by the percentage of downloaders who buy something) well below 1%, so low-cost and highly-scalable marketing and sales functions are key to these firms' profitability.[citation needed]

There are several different types of business models for making profit using open-source software (OSS) or funding the creation. Below are existing and legal commercial business approaches in context of open-source software and open-source licenses. The acceptance of these approaches varies; some of these approaches are recommended (like selling services), others are accepted, while still others are considered controversial or even unethical by the open-source community.

Dual licensing offers the software under an open-source license but also under separate proprietary license terms. The proprietary version can be sold to finance the continued development of the free open-source version.[7] Customers can be attracted to a no-cost and open-source edition, then be part of an up-sell to a commercial enterprise edition. Further, customers will learn of open-source software in a company's portfolio and offerings but generate business in other proprietary products and solutions, including commercial technical support contracts and services. A popular example is Oracle's MySQLdatabase which is dual-licensed under a commercial proprietary license as also under the GPLv2.[8] Another example is the Sleepycat License.

Another possibility is offering open-source software in source code form only, while providing executable binaries to paying customers only, offering the commercial service of compiling and packaging of the software. Also, providing goods like physical installation media (e.g., DVDs) can be a commercial service.

Another financing approach is innovated by Moodle, an open sourcelearning management system and community platform.[14][15] The business model revolves around a network of commercial partners[16] who are certificated and therefore authorised to use the Moodle name and logo,[17] and in turn provide a proportion of revenue to the Moodle Trust, which in turn funds core development.[18]

Selling subscriptions for online accounts and server access to customers is a way of making profit based on open-source software. Also, combining desktop software with a service, called software plus services. Providing cloud computing services or software as a service (SaaS) without the release of the open-source software itself, neither in binary nor in source form, conforms with most open-source licenses (with exception of the AGPL).

Because of its lack of software freedoms, Richard Stallman calls SaaS "inherently bad" while acknowledging its legality.[19][20] The FSF called the server-side use-case without release of the source-code the ASP loophole in the GPLv2 and encourage therefore the use of the Affero General Public License which plugged this hole in 2002.[21][22] In 2007 the FSF contemplated including the special provision of AGPLv1 into GPLv3 but ultimately decided to keep the licenses separate.[23]

Other financial situations include partnerships with other companies. Governments, universities, companies, and non-governmental organizations may develop internally or hire a contractor for custom in-house modifications, then release that code under an open-source license. Some organizations support the development of open-source software by grants or stipends, like Google'sSummer of Code initiative founded in 2005.[3]

Larger donation campaigns also exist. In 2004 the Mozilla Foundation carried out a fundraising campaign to support the launch of the Firefox 1.0 web browser. It placed a two-page ad in the December 16 edition of the New York Times listing the names of the thousands who had donated.[26][27]

The users of a particular software artifact may come together and pool money into an open-source bounty for the implementation of a desired feature or functionality. Offering bounties as funding has existed for some time. For instance, Bountysource is a web platform which has offered this funding model for open source software since 2003.

Another bounty source is companies or foundations that set up bounty programs for implemented features or bugfixes in open-source software relevant to them. For instance, Mozilla has been paying and funding freelance open-source programmers for security bug hunting and fixing since 2004.[28][29][30]

Some companies sell proprietary but optional extensions, modules, plugins or add-ons to an open-source software product. This can be a "license conform" approach with many open-source licenses if done technically sufficiently carefully. For instance, mixing proprietary code and open-source licensed code in statically linked libraries[37] or compiling all source code together in a software product might violate open-source licenses, while keeping them separated by interfaces and dynamic-link libraries might often adhere to license conform.

This approach is a variant of the freemium business model. The proprietary software may be intended to let customers get more value out of their data, infrastructure, or platform, e.g., operate their infrastructure/platform more effectively and efficiently, manage it better, or secure it better. Examples include the IBM proprietary Linux software, where IBM contributes to the Linux open-source ecosystem, but it builds and delivers (to IBM’s paying customers) database software, middleware, and other software that runs on top of the open-source core. Other examples of proprietary products built on open-source software include Red Hat Enterprise Linux and Cloudera's Apache Hadoop-based software. Some companies appear to re-invest a portion of their financial profits from the sale of proprietary software back into the open source infrastructure.[38]

A variant of the approach above is the keeping of required data content (for instance a video game's audio, graphic, and other art assets) of a software product proprietary while making the software's source code open-source. While this approach is completely legitimate and compatible with most open-source licenses, customers have to buy the content to have a complete and working software product.[40] Restrictive licenses can then be applied on the content, which prevents the redistribution or re-selling of the complete software product. An example is Kot-in-Action Creative Artel video game Steel Storm, where the engine is licensed as GPLv2 while the artwork is CC-BY-NC-SA 3.0 licensed.[41] Doing so conforms with the FSF and Richard Stallman, who stated that for art or entertainment the software freedoms are not required or important.[42]

The similar product bundling of an open-source software product with a proprietary hardware part is called tivoization and legal with most open-source licenses except GPLv3, which explicitly prohibits this use-case.[43]

An approach to allow commercialization under some open-source licenses while still protecting crucial business secrets, intellectual property and technical know-how is obfuscation of source code. This approach was used in several cases, for instance by Nvidia in their open-source graphic card device drivers.[45] This practise is used to get the open-source-friendly propaganda without bearing the inconveniences. There has been debate in the free-software/open-source community on whether it is illegal to skirt copyleft software licenses by releasing source code in obfuscated form, such as in cases in which the author is less willing to make the source code available. The general consensus was that while unethical, it was not considered a violation.

The Free Software Foundation, on the other hand, is clearly against this practice.[46] The GNU General Public License since version 2 has defined "source code" as "the preferred form of the work for making modifications to it." This is intended to prevent the release of obfuscated source code.[47]

Some companies provide the latest version available only to paying customers. A vendor forks a non-copyleft software project then adds closed-source additions to it and sells the resulting software. After a fixed time period the patches are released back upstream under the same license as the rest of the codebase. This business model is called version lagging or time delaying.[38][48]

This approach works only with own source code or with software under specific open-source licenses, namely the permissive licences, as there is no copy-left license available which allows the opening of source code in a defined delayed time-window after distributing or selling of a software product.

According to Yochai Benkler, the Berkman Professor for Entrepreneurial Legal Studies at Harvard Law School, free software is the most visible part of a new economy of commons-based peer production of information, knowledge, and culture. As examples, he cites a variety of FOSS projects, including both free software and open source.[58]

This new economy is already under development. In order to commercialize FOSS, many companies, Google being the most successful, are moving towards an economic model of advertising-supported software. In such a model, the only way to increase revenue is to make the advertising more valuable. Facebook has recently come under fire for using novel user tracking methods to accomplish this.[59]

This new economy is not without alternatives. Apple's App Stores have proven very popular with both users and developers. The Free Software Foundation considers Apple's App Stores to be incompatible with its GPL and complained that Apple was infringing on the GPL with its iTunes terms of use. Rather than change those terms to comply with the GPL, Apple removed the GPL-licensed products from its App Stores.[60] The authors of VLC, one of the GPL-licensed programs at the center of those complaints, recently began the process to switch from the GPL to the LGPL.[61]

Much of the Internet runs on open-source software tools and utilities such as Linux, Apache, MySQL, and PHP, known as the LAMP stack for web servers.[citation needed] Using open source appeals to software developers for three main reasons: low or no cost, access to source code they can tailor themselves, and a shared community that ensures a generally robust code base, with quick fixes for new issues.

Active Agenda is offered for free, but requires all extensions to be shared back with the world community. The project sells a "Non-Reciprocal Private License" to anyone interested in keeping module extensions private.

^"Interview with Richard Stallman". GNU/LAS s20e10. Linux action show. 2012-03-11. Retrieved 2014-08-22. RMS: I’m not gone to claim that I got a way to make it easier to raise money to pay people who write free software. We all know, that to some extent there are ways to do that, but we all know that they are limited, they are not as broad as we would like.

^"Commercial License for OEMs, ISVs and VARs". mysql.com. 2010-07-01. Retrieved 2013-08-10. Q4: What is Oracle’s dual license model for MySQL software? A: Oracle makes its MySQL database server and MySQL Client Libraries available under both the GPL and a commercial license. As a result, developers who use or distribute open source applications under the GPL can use the GPL-licensed MySQL software, and OEMs, ISVs and VARs that do not want to combine or distribute the MySQL software with their own commercial software under a GPL license can purchase a commercial license.

^6 Reasons to Pay for Open Source Software By Paul Rubens on CIO "Open source software is free to download, modify and use, but that doesn't mean it's not worth paying for sometimes. If you're using open source software in a commercial, enterprise capacity, here are six reasons why you should pay for free software." (Feb 13, 2013)

^McMillan, Robert (2012-03-28). "Red Hat Becomes Open Source’s First $1 Billion Baby". wired.com. Retrieved 2013-08-12. Other companies have made big money selling Linux — Intel, IBM, Dell, and others have used it as a way to sell hardware and support services — but Red Hat has managed the tricky business of building a software platform that big businesses will pay for.

^Sneddon, Joey-Elijah (2012-06-01). "Will You Help Change The Way Open-Source Apps are Funded?". OMGUbuntu. Retrieved 2013-08-08. Lunduke is pledging to open-source and distribute his portfolio of hitherto paid software – which includes the Linux distro management simulator Linux Tycoon - for free, under the GPL, if he can reach a donation-driven funding goal of $4000/m. Reaching this goal, Lunduke says, ‘will provide proof for others, who would also like to move their software businesses to be open source, that it is doable.’

^Marson, Ingrid (2004-12-16). "New York Times runs Firefox ad". cnet.com. Retrieved 2013-08-12. Fans of the Mozilla Foundation's Firefox browser who funded an advertisement in The New York Times will finally get to see their names in print on Thursday.

^ abArceri, Timothy (2013-07-26). "Help improve OpenGL support for the Linux Graphics Drivers". Indiegogo. Retrieved 2013-08-11. Helping fund the time for me to become a Mesa contributor and document the experience to make it easier for others to understand where to start with the Mesa codebase. Many people have brought up the idea of crowd sourcing open source driver development. This is a small scale experiment to see if it could actually work.

^Hunt, Katherine (2007-05-24). "Sourceforge quarterly profit surges as revenue rises". marketwatch.com. Retrieved 2013-08-13. Software Corp., late Thursday reported third-quarter net earnings of $6.49 million, or 9 cents a share, up from $997,000, or 2 cents a share, during the year-ago period. Pro forma earnings from continuing operations were $2.1 million, or 3 cents a share, compared with $1.2 million, or 2 cents a share, last year. The Fremont, Calif.-based maker of computer servers and storage systems said revenue for the three months ended April 30 rose to $10.3 million from $7.9 million. Analysts, on average, had forecast a per-share profit of 2 cents on revenue of $12 million.

^Hustvedt, Eskild (2009-02-08). "Our new way to meet the LGPL". Archived from the original on 2009-02-20. Retrieved 2011-03-09. You can use a special keyword $ORIGIN to say ‘relative to the actual location of the executable’. Suddenly we found we could use -rpath $ORIGIN/lib and it worked. The game was loading the correct libraries, and so was stable and portable, but was also now completely in the spirit of the LGPL as well as the letter!

^"TTimo/doom3.gpl". GitHub. 2012-04-07. Retrieved 2013-08-10. Doom 3 GPL source release [...] This source release does not contain any game data, the game data is still covered by the original EULA and must be obeyed as usual.

^Stallman, Richard (2012). "On-line education is using a flawed Creative Commons license". stallman.org. Retrieved 2013-08-10. In my view, nonfree licenses that permit sharing are ok for works of art/entertainment, or that present some party's viewpoint (such as this article itself). Those works aren't meant for doing a practical job, so the argument about the users' control does not apply. Thus, I do not object if they are published with the CC-BY-NC-ND license, which allows only noncommercial redistribution of exact copies.

^SOURCE CODESelected games have had their source code released by us. These games are: Duke Nukem 3D, Shadow Warrior, Rise of the Triad, Word Whiz, Beyond the Titanic, Supernova, & Kroz. You can obtain these from our downloads page.

^Andersen, John (2011-01-27). "Where Games Go To Sleep: The Game Preservation Crisis, Part 1". Gamasutra. Retrieved 2013-01-10. The existence of decaying technology, disorganization, and poor storage could in theory put a video game to sleep permanently -- never to be played again. Troubling admissions have surfaced over the years concerning video game preservation. When questions concerning re-releases of certain game titles are brought up during interviews with developers, for example, these developers would reveal issues of game production material being lost or destroyed. Certain game titles could not see a re-release due to various issues. One story began to circulate of source code being lost altogether for a well-known RPG, preventing its re-release on a new console.

^Bell, John (2009-10-01). "Opening the Source of Art". Technology Innovation Management Review. Retrieved 2013-08-09. [...]that no further patches to the title would be forthcoming. The community was predictably upset. Instead of giving up on the game, users decided that if Activision wasn't going to fix the bugs, they would. They wanted to save the game by getting Activision to open the source so it could be kept alive beyond the point where Activision lost interest. With some help from members of the development team that were active on fan forums, they were eventually able to convince Activision to release Call to Power II's source code in October of 2003.

^Proffitt, Brian (2000-10-13). "StarOffice Code Released in Largest Open Source Project". linuxtoday.com. Retrieved 2013-01-10. Sun's joint effort with CollabNet kicked into high gear on the OpenOffice Web site at 5 a.m. PST this morning with the release of much of the source code for the upcoming 6.0 version of StarOffice. According to Sun, this release of 9 million lines of code under GPL is the beginning of the largest open source software project ever.